Wikipedia of Finance - e-learning course on Accounting Wikipedia Chapter - Learn about General Ledger

What Is a General Ledger? Definition, Format and Example of General Ledger


General Ledger Definition:

In a financial accounting, super set of accounts that summarize records of transactions occurred during a specified period for a business or an organization is called as General Ledger Account. All the credit and debit balances of ledger account should be equal. This information is then used to prepare financial statement of an organization or a business. When debit and credit fails to match, under those circumstances errors, omissions and mistakes has to be rectified before preparing final accounting reports.

General ledger contain accounts under which journal entries are been posted. For example general ledger consist of accounts like assets a/c, expenses a/c, liabilities a/c, revenue a/c, equity a/c, machinery a/c, account payable a/c, prepaid expenses a/c, building a/c, cash a/c, bank a/c, etc. Under large entities, a unique number is been assigned to every ledger accounts. Purpose behind assigning unique number is to provide references number for each department within a company or an organization.

Purpose of the General Ledger Accounting:

Firstly it is important to understand that objective behind accounting process is to summarise records at the end of accounting year. A company or a business undergoes thousands of transactions every year. To summarise this transactions, initially journal entries are created followed by general ledgers which are then finalized to prepare financial reports which are known as “Income statement and Balance sheet of the company”. Primary purpose of preparing general ledger is to summarise financial transactions as shown in below diagram.

Format of General Ledger Account:

Basic details like transaction date, transaction description, amount, balance brought forward, balance carry forward should be present in ledger account. The complete list of accounts is called chart of accounts which is then replicated into trial balance for rectifying errors and omissions to match debit and credit balances. General ledger template is called T-account format. Some of the frequently used ledger accounts are assets a/c, owner’s equity a/c, expenses a/c, revenue a/c, liabilities a/c, cash a/c and bank a/c are prepared by default. These accounts are further divided and sub-ledger accounts are created like account payable a/c, account receivable a/c, etc. Thereafter balances of all the ledger accounts are used to prepare trial balance. In trial balance credit and debit balances are been matched and in-case of errors or mistakes it has to be rectified. After all this process finally financial statement of the company is then been prepared.

Examples of General Ledger Account are listed below:

General ledger account example-1: Bank A/c

Account Folio # DEPT005

Bank Account

As On 31-03-2016

A.Y 2016-2017

Date Journal Ref # Amount (Rs.) Date Credit Amount (Rs.)
09-07-15 Ref # E0021 20,000.00 01-04-15 Balance B/D 5,000.00
12-08-15 Ref # E0097 25,000.00 08-08-15 Ref # F0011 70,000.00
04-09-15 Ref # T0088 9,000.00
01-12-15 Ref # V0063 6,000.00
31-03-16 Balance C/F 45,000.00
 Total: 90,000.00  Total: 90,000.00

General ledger account example-2: Cash A/c

Account Folio # DEPT027

Cash Account

As On 31-03-2016

A.Y 2016-2017

Date Debit Amount (Rs.) Date Credit Amount (Rs.)
09-06-15 Cash Withdraw 17,500.00 01-04-15 Balance B/D 50,000.00
17-08-15 Cash Withdraw 7,500.00 12-08-15 Bank A/c 7,500.00
21-09-15 Bank A/c 2,500.00
17-12-15 Bank A/c 5,000.00
31-03-16 Balance C/F 40,000.00
 Total: 65,000.00  Total: 65,000.00

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